One of the most common questions people have about choosing debt settlement is whether or not it will affect their credit to a point where it would be difficult or impossible to buy a home or car. After all, most people choose debt settlement when they’re ready to get out of the hole they’ve been in, and it is only natural that this feeling would be accompanied by the desire to get new wheels or digs, right?
Debt Settlement and Qualifying For A Car Loan
Will debt settlement prevent you from qualifying for a car loan? It is hard to say for a car loan, but chances are that if you have some form of down payment and a job you’ll be able to get some sort of auto loan to help you buy a car.
However, if you are in a debt settlement program be prepared to get terms that aren’t as favorable as the ones you hear advertised (which are almost always geared toward those with perfect credit). The deciding factor for getting the loan could be you in saying whether or not you can afford the payment or want to make the payment that the car dealer’s financing department offers you.
Debt Settlement And Qualifying For A Mortgage
Will debt settlement prevent you from qualifying for a mortgage? In terms of a mortgage – the short answer is yes - but not because of it being a debt settlement program. To legitimately go into a debt settlement program your credit will probably already be such that it will prevent you from qualifying for most home loan programs. This is especially true following the collapse of the subprime lending industry in 2007.
Most of the loans that allowed someone to buy a home with collections, charge offs, and bad credit have pretty much gone by the wayside unless you are prepared to put 20-30% down. Most of us don’t have that kind of money to put into a home so the loan options don’t exist if your credit is in the drain.
When Can I Qualify For A Mortgage After Starting A Debt Settlement Program?
Without getting too much into how debt settlement works (see: How Do Debt Negotiation or Debt Settlement Programs Work for more information) the time frame for a debt settlement program is generally 2-4 years. In order to qualify for a mortgage you will most likely have to wait until at least your debt negotiation program is completed. You may even have to wait until at least 12 months after your debt is completely settled through the program before you can get a mortgage.
The reason for this is that mortgage loan programs look heavily at your last 12-24 months of credit history and credit scores. If you have been in a debt settlement program you may have had bad debt still on your credit report within the past 12 months which could prevent you from qualifying for a mortgage. Depending on how your past bad debt gets noted on your credit report will determine how fast you can get a mortgage after completing a debt negotiation program.
Are My Credit And Credit Scores Hurt By Debt Settlement?
One of the biggest misconceptions about debt settlement is that it is bad for your credit report and scores. This is simply not true if debt settlement is done correctly. By correctly I mean you should only start a debt settlement plan if you have bad credit with accounts already in collection and charged off status. If this truly is the case your credit should already be bad when you start this program. In paying off different accounts and cleaning up your credit report you credit scores should actually improve through the debt settlement program.
What’s Next?
If you are in a debt settlement program you might want to take a deep breath and relax. By choosing debt settlement you probably are in the best place for your credit and getting it back on track. As discussed, you probably aren’t in a good position to be buying a home but again this isn’t forever.
If your debt is bad and you’re considering a debt negotiation program as a way to get your credit and financial life back on track then you might want to take a deep breath and relax as well. You may have just found the solution you’ve been looking for. If you haven’t already, make being out of debt your immediate goal and then revisit owning a home.
